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MAR  3     19?1 


Some  Lessons  for  1921 


An  Address 

By 

CHARLES  H.  SABIN 

President,  Guaranty  Trust  Company  of  New  York 


Some  Lessons  for  1921 


AN  ADDRESS 

By 

CHARLES  H.  SABIN,  President  of  the  Guaranty 
Trust  Company  of  New  York,  as  Chairman 
of  Group  8  of  the  New  York  State  Bankers 
Association,  at  the  Annual  Dinner  of  Group  8, 
Monday,  January  17,  1921 


Some  Lessons  for  1921 

AN  ADDRESS 

BY  V,  :,.;:' 

Charles  H.  Sabin,  President  of  the  Guaranty  Trust  Company  of 

New  York,  as  Chairman  of  Group  8  of  the  New  York  State 

Bankers  Association,  at  the  Annual  Dinner  of  Group  8, 

Monday,  January  17,  1921. 


r  I  TELE  bankers  of  Group  8,  in  common  with  other 
-L  American  bankers,  can  view  with  satisfaction  the 
record  of  the  year  they  have  just  closed,  and  the  prospects 
of  the  year  to  come.  They  have  reason  to  be  proud  of  the 
measure  of  service  rendered,  of  stability  maintained,  of 
economic  sanity  and  sound  earnings  which  have  attended 
their  efforts.  Never  before  in  the  history  of  the  country 
have  its  credit  resources  been  subjected  to  such  a  strain, 
and  never  before  have  recurrent  crises  been  so  adequately 
met  and  the  business  interests  of  the  country  so  fully 
protected  against  dangerous  tendencies.  Thanks  to  a 
sound  and  elastic  banking  system  and  to  the  intelligent 
cooperation  and  wise  direction  of  the  banking  institu- 
tions of  the  country,  the  United  States  has  passed 
through  a  period  of  violent  reaction,  falling  markets, 
and  a  world-wide  economic  disturbance  without  serious 
fatalities.  Today  we  feel  assured  that,  although  there 
are  many  readjustments  yet  to  be  made  in  the  months  and 
years  to  come,  there  is  every  reasonable  assurance  of  a 
return  to  more  normal .  business  conditions,  stabilized 
prices,  easier  money  and  larger  business  opportunities 
during  the  current  year. 

SHOULD  CAPITALIZE  EXPEBIESTCE  OF  1920 
When  1921  was  ushered  in  it  is  probable  that  every 
business  man  in  the  country  heaved  a   sigh   of   relief 


because  1920  had  ended.  And  yet  the  last  twelve  months, 
despite  all  t}ie  trials  and  tribulations  they  brought  us, 
were  rich  in  experience  which  should  be  capitalized  in 
the  current  year  and  for  many  years  to  come.  While 
it  has  ironically  been  observed  that  all  we  learn  from 
history  is  that  we  never  learn  from  history,  it  is  to  be 
hoped  that  American  business  and  financial  interests 
will  profit  by  the  lessons  that  1920  taught  us  and  ulti- 
mately transcribe  them  on  the  right  side  of  the  ledger. 
In  proportion  to  the  amount  of  our  intelligent  applica- 
tion of  those  lessons  will  we  make  1921  prosperous  and 
lay  the  foundation  for  our  future  prosperity. 

Surely  1920  impressed  upon  all  of  us  the  folly  of  ex- 
travagance in  personal,  business  and  governmental 
affairs.  During  the  year  that  has  just  passed  we  should 
have  learned  as  never  before  the  folly  and  worse  of 
undermining  the  moral  basis  upon  which  modern  busi- 
ness is  founded  through  unjustifiable  repudiation  of  con- 
tracts. We  should  have  realized  the  folly  and  danger  of 
inefficiency ;  of  unsound  and  uneconomic  taxation ;  of  Gov- 
ernment participation  in  essentially  private  business ;  of 
trying  to  substitute  legislative  enactments  and  adminis- 
trative decrees  for  natural  economic  laws ;  of  permitting 
raids  upon  the  Treasury  for  the  benefit  of  any  special 
interests — and,  above  all,  for  the  purpose  of  sustaining 
the  prices  of  any  commodities  above  their  market  level. 
When  commodity  prices  are  artificially  supported  every 
element  of  our  population,  including  finally  even  the  fav- 
ored class  that  temporarily  profits,  is  penalized  through 
keeping  taxes  high  and  preventing  a  'reduction  in  the  high 
cost  of  living. 


The  experiences  which  1920  afforded  in  public  finances 
should  have  taught  our  legislators  that  a  taxing  system 
based  on  temporary  and  abnormal  conditions  cannot 
justly  be  continued  when  those  conditions  have  passed. 
An  excess  profits  tax,  for  instance,  will  be  adequately 
productive  only  so  long  as  there  are  sufficient  excess 
profits  to  tax,  otherwise  it  must  inevitably  and  rightly 
fail.  France  is  learning,  if  we  are  not,  that  a  tax  which 
is  dependent  largely  on  the  continuance  of  high  prices 
is  unscientific,  for  rational  attempts  toward  a  resump- 
tion of  normal  conditions  and  lower  prices  automatically 
act  as  checks  on  revenues. 

MUST  BE  EARLY  REVISION  OF  TAXES 

While  the  exigencies  of  the  hour  may  have  originally 
justified  Congress  in  resorting  to  a  method  of  taxation 
as  inequitable  and  as  unsound  in  theory  as  the  present 
taxes  on  profits  and  income,  no  excuse  may  be  offered 
for  continuing  to  levy  such  taxes  during  the  critical 
period  of  transition  from  a  war  to  a  peace  basis,  and 
Congress  must  lend  a  sympathetic  ear  to  the  demands  of 
business  for  an  early  revision  of  existing  tax  laws. 
Such  revision  should  have  as  its  objective  a  more  equi- 
table distribution  of  the  burden  of  taxation. 

The  fundamental  objection  to  our  present  method  of 
raising  revenue  is  that  it  is  based  in  altogether  too 
large  a  degree  on  income  and  profits  and  is  designed 
to  collect  a  vast  amount  of  revenue  with  little  regard 
to  its  effect  on  business.  While  other  changes  in  the 
law  may  be  desirable,  three  of  its  provisions  stand  out 
as  especially  obnoxious.  These  are  the  excess  profits 
tax,  the  very  high  surtax  rates  and  the  taxation  of  paper 
profits  which  have  not  been  realized  and,  in  many  cases, 
never  will  be  realized. 


The  year  that  has  just  passed  also  contributed  materi- 
ally to  the  cumulative  evidence  of  the  necessity  for  ac- 
cording fair  treatment  to  the  railroads  and  the  greater 
efficiency  of  private  ownership  as  contrasted  with  Gov- 
ernment ownership  or  control.  Since  their  return  to  pri- 
vate management,  the  railroads  have  made  great  strides 
in  bettering  their  service  without  additional  equipment 
through  applying  efficient  methods.  And  that  im-^ 
provement  in  transportation  facilities  is  playing  an  im- 
portant part  in  speeding  our  present  economic  read- 
justments. It  is  one  of  the  factors,  for  instance,  that 
is  steadily  improving  the  credit  situation  by  expediting 
the  movement  of  products  that  had  long  been  held  back 
from  markets  and  thereby  had  kept  large  amounts  of 
credit  "frozen." 

CAPITAL  AND  LABOR  MUTUAL  BENEFICIARIES 

As  our  fanners  should  have  learned  in  the  last  twelve 
months  that,  unfortunate  as  it  undoubtedly  is,  they 
must  take  their  losses,  in  common  with  all  other  business 
interests,  due  to  the  general  decline  of  commodity  prices, 
so  labor  should  have  learned  that  the  alternative  to 
working  for  wages  which  prevailing  conditions  will  al- 
low is  to  do  without  work.  No  one  wants  wide-spread 
unemployment,  of  course,  because  not  only  those  wTho 
are  out  of  work  but  all  other  elements  of  our  popula- 
tion directly  or  indirectly  suffer  the  consequences  in 
some  degree.  But  the  extent  of  unemployment  rests 
largely  in  the  hands  of  labor.  There  is  plenty  of  work 
to  be  done  in  this  country,  as  well  as  throughout  the 
world,  but  it  is  peace-time  work  and  cannot  be  done 
on  war-time  wages.  Eeadjustments  of  wage  schedules 
must  be  made  on  a  basis  of  declining  prices  and  present 


productiveness,  and  true  scales  must  be  established 
based  on  new  conditions. 

The  tragic  folly  and  bitter  experience  of  the  Russian 
people  should  have  taught  the  world  that  capital  and 
labor  are  mutual  beneficiaries  of  their  combined  efforts, 
and  that  the  relationship  of  capital  to  labor  is  not  that 
of  an  overlord  exploiting  a  helpless  majority  but  only 
that  of  an  intelligent  fellow  worker  with  common 
interest. 

The  experiences  of  1920  also  emphasize  more  than 
ever  the  urgent  need  for  international  peace  and  the 
stabilization  of  international  relations.  It  is  encourag- 
ing to  note  that  American  business  men  generally  are 
beginning  to  realize  thoroughly  how  dependent  our  wel- 
fare is  upon  stable  conditions  abroad. 

INTERNATIONAL  ECONOMIC  RELATIONS 

When  the  war  ceased,  shortsighted  men  thought  that 
the  United  States,  with  its  great  riches,  would  escape 
the  effects  of  the  awful  destruction  of  life  and  industry 
and  wealth  in  Europe,  as  they  had  unwisely  believed 
we  could  stay  out  of  the  conflict,  and  might  prosper 
indefinitely  upon  the  urgent  needs  of  the  remainder  of 
the  world.  Here  again  the  law  of  international  economic 
relations,  that  no  nation  can  prosper  by  itself  alone,  has 
been  fully  proved.  The  economic  paralysis  that  began 
with  the  belligerent  nations  has  slowly  been  spreading, 
until  today  it  has  affected  every  country  throughout 
the  world. 

It  is  clear  enough  now  that  when  two  or  three  hun- 
dred million  people  are  forced  to  reduce  consumption 
and  are  unable  to  achieve  more  than  a  small  percentage 
of  customary  production  for  a  considerable  period, 


the  surplus  products  of  the  rest  of  the  world,  upon 
which  Europe  formerly  relied  for  raw  materials  or  food 
supplies,  accumulate  in  warehouses  or  lie  ungathered, 
while  the  commodities  for  which  they  are  normally  ex- 
changed fail  to  move  over  the  trade  routes  between  the 
nations.  Yet  it  has  taken  two  long  years  to  bring  about 
a  general  appreciation  of  this  fact,  and  many  have  even 
assumed  that  it  could  be  ignored. 

One  of  the  chief  tasks  of  this  year  should  be  to  aid 
in  the  restoration  of  Europe  to  normal  production  by 
using  all  our  own  great  resources  in  finance  and  in 
initiative.  Europe  is  for  the  most  part  courageously 
endeavoring  to  help  herself — and  that  is  her  greatest 
asset,  as  well  as  our  best  guarantee.  There  are  hopeful 
signs  of  recovery,  particularly  in  England,  France  and 
Belgium,  but  until  the  terms  of  the  German  reparation 
are  fixed  and  peace  is  made  a  reality  there  will  be  eco- 
nomic and  social  disturbance. 

We,  in  America,  should  have  the  courage  to  meet 
the  demands  of  after-war  world  conditions,  if  afflicted 
Europe  is  striving  bravely  to  do  so.  We  can  far  better 
afford  as  a  nation  to  send  our  surplus  cotton,  grain,  or 
other  products  to  needy  countries  on  long-term  credits 
than  to  permit  these  commodities  to  lie  unconsumed, 
while  new  crops  are  harvested  and  a  new  surplus  of 
manufactured  goods  is  forthcoming  to  depress  prices 
still  further  in  domestic  markets  and  to  retard  industry. 
They  might  well  be  used  to  start  production  where  it 
is  checked  and  to  set  in  active  motion  again  the  inter- 
change of  products  between  all  countries.  Our  banks 
are  doing  much  and  are  planning  to  do  more  in  helping 


to  finance  such  foreign  trade  activities.  Fortunately, 
our  banking  system,  as  a  whole,  is  in  a  condition  to 
permit  such  cooperation. 

OUR  STRONG  BANKING  POSITION 

The  credit  expansion  here  since  1914  has  occurred 
without  destroying  the  essential  safety  and  strength 
of  the  reserve  position  of  our  banks.  Expansion  of  bank 
deposits  and  note  circulation  since  1914  is  an  outgrowth 
of  an  increased  stock  of  gold  and  a  more  effective  use 
of  banks  through  the  increasingly  efficient  use  of  the 
Federal  Reserve  System.  The  total  resources  of  all 
banks  of  the  United  States  on  June  30,  1920,  amounted 
to  $53,000,000,000,  not  including  Federal  Reserve  Banks, 
a  figure  that  exceeds  the  combined  bank  assets  of  all 
other  leading  nations  of  the  world. 

An  incident  in  1920  reflecting  the  strength  of  our 
banking  system  was  that  of  the  large  payments  made 
in  the  middle  of  December  for  taxes,  the  maturity  of 
Treasury  certificates  and  Liberty  Bond  interest  at  prac- 
tically the  same  time.  The  huge  shifting  of  funds  which 
this  occasioned  took  place  with  scarcely  any  effect,  while 
it  was  not  many  years  ago  that  a  much  smaller  transfer 
of  funds  might  have  resulted  in  serious  difficulties. 

Our  banks  have  been  able  and  have  had  the  wisdom 
to  check  the  orgy  of  over-speculation  and  over-expan- 
sion following  the  war  by  raising  discount  rates,  by 
requiring  larger  margins  and  safer  collateral  on  loans, 
and  by  the  restriction  of  credit  to  essential  industries. 

The  period  of  readjustment,  through  which  we  are  now 
passing,  has  been  marked  by  the  most  rapid  and  exten- 
sive decline  in  prices  in  our  history.  And  measured  by 


actual  test  under  such  conditions,  which  is  the  essential 
thing,  our  banking  system  has  proved  to  be  sound  and 
not  unduly  expanded. 

To  SUSTAIN  OUB  FOREIGN  TRADE 

As  further  evidence  of  their  ability  and  desire  to  co- 
operate in  the  movement  toward  relieving  strained 
trade  conditions,  the  banking  interests  throughout  the 
country  are  now  cooperating  with  nation-wide  agricul- 
tural and  industrial  interests  in  the  formation  of  a 
$100,000,000  Edge  Law  Corporation,  which  is  designed 
to  stimulate  our  foreign  trade  and  at  the  same  time 
relieve  strains  on  domestic  credit.  But,  in  order  to  be 
successful  on  the  gigantic  scale  that  the  situation  de- 
mands, this  project  must  have  the  active  support  not 
only  of  all  banks  but  also  of  all  industrial,  agricultural 
and  business  interests  generally. 

It  is  a  matter  of  congratulation  for  New  York  bank- 
ers that  the  committee  of  the  American  Bankers  Asso- 
ciation which  formulated  this  plan  has  been  so  ably  di- 
rected by  one  of  their  number,  Mr.  John  McHugh.  The 
plan  which  has  been  worked  out  for  the  organization  of 
this  corporation  offers  a  possible  and  practical  solu- 
tion of  the  problem  of  financing  the  purchase  of  our 
surplus  production  abroad.  If  carried  out,  it  will  place 
the  United  States  in  a  position  of  leadership  in  world 
trade  and  help  vastly  in  restoring  the  world  to  a  normal 
economic  basis,  as  well  as  aid  in  maintaining  our  domestic 
prosperity.  The  conception  of  this  plan  was  one  of  the 
interesting  events  of  the  year.  It  deserves,  and  I  have 
no  doubt  will  receive,  the  cordial  support  of  the  intelligent 
business  and  banking  community. 

8 


Now  that  we  have  passed  the  most  critical  period  in 
our  post-war  readjustment  process,  let  us  profit  by  the 
many  lessons  that  it  has  taught  us  and  look  forward  to 
the  future  confidently  and  constructively,  for  only  our 
own  folly  can  prevent  us  from  realizing  and  capitaliz- 
ing the  unprecedented  possibilities  and  opportunities 
that  lie  immediately  ahead  of  us. 

There  are  problems  before  us  to  which  the  banking 
community  must  give  heed — which,  indeed,  demand  our 
serious  consideration  and  cooperation.  Every  period  of 
money  strain  and  business  depression  brings  forth  a 
fresh  crop  of  panaceas,  for  the  most  part  unsound,  and 
usually  vitally  affecting  banking  practices  and  financial 
integrity.  Such  revenue  proposals  as  a  tax  upon  undi- 
vided profits  and  bank  deposits ;  such  class  legislation  as 
special  forms  of  credit  for  agriculture  or  real  estate, 
framed  without  regard  to  the  general  business  welfare 
and  in  the  furtherance  of  some  special  interest;  pro- 
posed investigations  into  banking  activities  for  political 
purposes;  efforts  to  create  fiat  money  and  credit;  new 
and  restrictive  forms  of  regulation,  all  spring  from  an 
atmosphere  of  discontent  and  in  a  universal  attempt  to 
find  both  the  cause  and  the  cure  for  economic  disturb- 
ances outside  of  the  operation  of  economic  laws. 
Against  all  such  efforts  we  must  be  upon  our  guard, 
not  only  in  the  protection  of  the  interests  entrusted  to 
us,  but  even  more  in  the  protection  of  the  public  inter- 
est, which  can  be  furthered  only  by  the  maintenance  of 
a  sound,  intelligently  administered  banking  system. 

STABILIZATION  OF  MIND  NEEDED 

Finally,  it  is  hoped  that  the  experiences  of  1920  have 
brought  us  to  a  saner  attitude  than  that  which  we  took 


during  the  stress  of  the  war  and  its  immediate  after- 
math. This  nation,  in  common  with  others,  needs  even 
more  than  stabilization  of  prices  and  economic  condi- 
tions, a  stabilization  of  mind.  It  is  time  for  us  to  turn 
away  from  those  false  prophets  who  have  inflicted  their 
fallacious  theories  upon  a  suffering  world,  willing,  in  its 
misery,  to  try  any  alleged  cure  for  economic  and  poli- 
tical ills.  It  is  time  for  us  to  turn  a  deaf  ear  to  pessi- 
mists and  rumor-mongers,  whose  thoughtlessness  or  ma- 
liciousness is  frequently  as  dangerous  and  criminal  as 
it  is  unjust  and  unwarranted. 

Such  perverted  thinking  and  loose  talking  as  have 
ruined  a  great  state  like  Eussia  are  now  seeking  to  in- 
jure our  private  and  public  institutions,  and  are  striv- 
ing to  undermine  our  national  Constitution  and  form 
of  government.  They  are  productive  of  such  a  das- 
tardly assault  upon  life  and  property  as  was  made  a  few 
months  ago  in  the  heart  of  the  financial  district.  They 
are  responsible  today  for  the  utterly  false  and  absurd 
rumors  surreptitiously  circulated  about  solvent  firms 
and  sound  financial  institutions.  In  the  public  press, 
the  parlor,  or  on  the  platform  they  are  destructive  of 
public  confidence  and  subversive  of  public  interest  and 
must  be  stamped  out,  although  I  am  a  firm  believer  in 
the  power  of  the  truth  to  prevail  eventually  despite  all 
the  efforts  of  her  traducers.  I  am  equally  confident  that 
in  the  end  the  instigators  of  such  attacks  will  find  that 
their  lies  act  as  boomerangs.  They  are  bound  to  dis- 
cover that  Abraham  Lincoln  thoroughly  understood  the 
American  people  when  he  said,  "You  can  fool  some  of 
the  people  all  the  time,  and  all  of  the  people  some  of 
the  time,  but  you  can't  fool  all  the  people  all  the  time." 
And  the  American  public  has  effective  ways  of  dealing 
with  those  who  attempt  to  deceive  it. 

10 


The  situation  today  demands,  above  all  things,  wise 
and  courageous  leadership,  and  behind  it  the  intelligent 
cooperation  of  constructive  forces.  Great  power  for 
public  service  and  the  preservation  of  American  insti- 
tutions lies  in  the  hands  of  the  bankers  of  this  group, 
We  believe  that  the  political,  social  and  economic  sys- 
tem of  this  country  has,  on  the  whole,  justified  itself  as 
more  productive  of  human  happiness  and  progress  than 
any  which  the  world  has  yet  tried,  in  spite  of  the  obvious 
limitations  of  human  nature.  To  forsake  the  estab- 
lished order  of  democracy,  economic  sanity  and  private 
enterprise,  to  follow  false  gods  into  untried  fields  of 
experiment,  would  be  suicidal  folly,  and  right-minded, 
responsible  men  must  be  on  their  guard  as  never  before 
to  resist  such  efforts. 

The  responsibility  lies  heavy  upon  us,  as  the  holders 
of  a  large  part  of  the  world's  resources,  the  keepers  of 
the  world's  welfare  and  the  guardians  of  its  future,  to 
respond  intelligently  and  generously  to  the  world's  com- 
bined call  of  duty  and  opportunity. 


11 


»  Binder 

I    Gaylord  Bros.,  Inc.    1 

,  /        Stockton,  Calif.       1 
T.M.  Reg.  U.S. Pat. Off.  i 


(748923 


"2.4-8 

ST. 


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